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us stock market, understanding the stock market
Begin Part 2 of 3
Support and Resistance
Nasdaq: Closed at 1210.47
Resistance: The March/May downtrend line at 1242. The 50 day MVA (1260.71). 1291 to 1316, an early August interim high. 1357.09, the October 1998 bear market low. There is another downtrend line from the March and May highs at 1335. 1418, the interim test after the September 2001 low, and 1426 the August high.
Support: 1200 (August closing low) to the July intraday low at 1192.42. The 18 day MVA (1188.97). The 10 day MVA (1169.05). There is price support from 1080 to 1100. Then there is a big shelf of support at 1050 down to 1000.
S&P 500: Closed at 835.32
Resistance: The first March down trendline 842. 850 to 855 (the October 1997 and Q2 1998 lows). The 50 day MVA (869.03). 875 is price resistance of some significance. July, August and September interim highs at 911. The September 2000/May 2001 downtrend line at 910. The downtrend lines from the March and April highs (916). Price resistance at 950. 965, the September 2001 closing low along with the August 2002 high.
Support: The 18 day MVA (827.38). The 10 day MVA (814.08). Prior closing lows and highs at 800 from July and October. The first bottom channel line in the March downtrend (803). The September 2000/January 2001 down trendline at 790. The July intraday low at 775.68. The lowest channel line in the March downtrend channel (761). 750 to 760 with an intraday touch to 730.
Dow: Closed at 7850.29
Resistance: 8000 (August low at 8043; September 2001 intraday low at 8062). The 50 day MVA (8187.53). 8250 acted as resistance before and is coincident with the second March down trendline. Some price resistance at 8500. The late July interim high at 8762.14 (8745 closing). A range of resistance from 9000 on up to 9050.
Support: The 18 day MVA (7772.51). The 10 day MVA (7643.96). The August down trendline at 7590. The lowest bottom channel line of the March downtrend (7575). 7100, the March 1997 tops. 6975 is next.
Economic Calendar
10-16-02
Business inventories, August (8:30): 0.2% expected, 0.4% prior.
10-17-02
Housing starts, September (8:30): 1.636M expected, 1.609M prior.
Building permits, September (8:30): 1.670M expected, 1.666M prior.
Initial jobless claims (8:30): 384K prior.
Industrial production, September (9:15): 0.1% expected, -0.3% prior.
Capacity utilization, September (9:15): 76.0% expected, 76.0% prior.
Philly Fed, October (12:00): 2.0 expected, 2.3 prior.
10-18-02
Trade balance, August (8:30): -$35.2B expected, -$34.6B prior.
CPI, September (8:30): 0.2% expected, 0.3% prior.
Core CPI (8:30): 0.2% expected, 0.3% prior.
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TEAM TRADES
QCOM: One of those banged up techs, but QCOM had been moving laterally and in a slight ascending triangle for 3 months, not working in a steady downtrend. More of a 'building' pattern off the bottom of its base. We were looking for a move over the high in the pattern at 30, and Friday it gapped over that level and did not really look back. Waited for a pullback, got a slight one and then it started back up, moving over the session high at 31. We were looking at a quick play on this one and particularly looking at options. The January 27.50 options were 6.30 by 6.50 by the time we had issued everything and got back to the option screen. We jumped in just to see it turn back; the pullback we really wanted. Then it moved up from 30.80, rallying to 31.80 before it turned back down to again test 30.80 once again before another moved up toward the close but off the high. It was that kind of session. Playing gaps are difficult; we prefer to have a 'normal' session where the index starts slightly softer and moves up. QCOM will probably give us another entry point early this week, and we will look at augmenting the position on a lower volume test as the stock has 'pop.'
THE PLAYS:
Good moves: MME; KDE; RNR; COCO; QCOM
NEW BONUS PLAYS:
Upside:
Several new pre- and post-split plays. See those sections below
Downside: We are focusing on weak sectors that have underperformed the market and are still in trouble even after the late-week rally.
GNTX (Gentex Corp.--$27.18; +0.19; optionable): Auto parts
http://biz.yahoo.com/p/g/gntx.html
STATUS: Put. Auto parts as a group are still struggling (those lower auto sales reported in the retail sales report). After a major tank after breaching the 50 day MVA (28.01), GNTX has rallied back up to test that level, reaching 27.75 on the high and showing a very tight doji. After the big reversal volume Wednesday, volume fell off the table as it rallied up Thursday and Friday, volume falling below average. It looks to be a classic momentum move with the market, tagging along on low volume and now ready to give back some of those big gains it made without many buyers.
Volume: 308.85K Avg Volume: 449.611K
BUY POINT: $26.97 Volume=455K Target=$24 Stop=$28.15
POSITION: GXQ XF - Dec. $30p (-56 delta, $2.65)
http://www.investmenthouse.com/cs/gntx.html
JPM (JP Morgan--$17.19; +1.24; optionable): Big bank
http://biz.yahoo.com/p/j/jpm.html
STATUS: Put, testing 18 day MVA (18.35). There is continued rumor of a big bank in trouble, and JPM keeps making the top 3 list. Even if it is not JPM, if there is an announcement, JPM will be slaughtered as it is still considered 'next in line.' On top of that, technically JPM is still in a deep downtrend. It joined in the move up late in the week but on lower and lower volume than the selling. It managed to test toward the 18 day MVA on the Friday high (17.85) but fell off the high to close as volume was much lower. This is where JPM has found resistance in its entire downtrend, and even if no announcement comes, JPM could work its way down to the target very easily in just a 'normal' pullback to test the market move last week. The option prices are reasonable versus the delta and the target drop. If there is a bank problem and we are in the play on the continuing downtrend, the gains could be impressive. We will still let it make its move, however as the play is the continuing downtrend with a bank implosion as icing (in a perverse way).
Volume: 19.016M Avg Volume: 15.559M
BUY POINT: $17.05 Volume=20M Target=$15 Stop=$18.11
POSITION: JPM XD - Dec. $20p (-64 delta)
http://www.investmenthouse.com/cs/jpm.html
RY (Royal Bank Canada--$33.47; +0.57; optionable): Money center bank
http://biz.yahoo.com/p/r/ry.html
STATUS: Testing downtrend. RY joined in the late week rally, rising from the ashes at the bottom of its downtrend channel, but doing so on lower and lower volume as the move progressed. Friday RY tapped over its 200 day MVA (33.59) and right at the down trendline on its high (33.93) and fell back to close below the 200 day MVA. The sector had its bounce, and while the late week rally could be the start of a bigger rally/bottom, as with JPM, RY can give us a nice return just in a normal pullback from the large gains at the end of the week. The delta versus price versus point move can give us a good return on a moderate pullback/test.
Volume: 78.4K Avg Volume: 71.337K
BUY POINT: $33.24 Volume=95K Target=$31 Stop=$34.25
POSITION: RY MG - Jan. $35p (-69 delta)
http://www.investmenthouse.com/cs/ry.html
CONTINUING BONUS PLAYS
Upside:
Play Date: 09/19/2002
APPX (American Pharmaceutical--$17.99; +0.12; no options): Drug manufacturer
http://biz.yahoo.com/p/a/appx.html
STATUS: Cup w/handle. Broke out Thursday and rested Friday but on some higher volume than we would like. With some overall market softness early in the week we again look for APPX test the breakout toward 17, and when it holds and starts up that is a new buy point. Accumulation (9 to 4) helped it withstand the selling and will help it move higher.
Volume: 838.563K Avg Volume: 178.949K
BUY POINT: New positions: after a test toward 17, 17.55 (orig. $17.11). Volume=225K Target=$20.55 Stop=$16.35
POSITION: Stock (no option chain)
http://www.investmenthouse.com/cs/appx.html
Play Date: 10/05/2002
CHD (Church & Dwight--$34; +0.48; no options): Consumer cleaning products
http://biz.yahoo.com/p/c/chd.html
STATUS: Cup w/handle. Gapped up Friday, looking for the breakout on strong volume, but stalled right at 34 below the buy point. Still very nice in the handle of the 5-month base. Solid accumulation at 5 up weeks on rising volume to 2 down weeks on rising volume. Waiting for the strong breakout move.
Volume: 319.9K Avg Volume: 156.677K
BUY POINT: $34.35 Volume=225K Target=$39.75 Stop=$31.95
POSITION: Stock (no option chain)
http://www.investmenthouse.com/cs/chd.html
Play Date: 10/10/2002
QCOM (Qualcom--$31.37; +1.45; optionable): Telecom equipment
http://biz.yahoo.com/p/q/qcom.html
STATUS: Trading range. QCOM made the break from the trading range Friday, gapping higher on strong volume. We wanted to get in and did so, but playing the gap and meteoric rise was not easy. What we expect early this week is some testing back toward the breakout point, and we expect that to hold, giving a good entry point for new or additional positions (we took a partial position on the move). Accumulation in the trading range is solid at 5 up weeks on rising volume to 2 down weeks on rising volume. This is one stock that many are saying is the tech stock to buy if you are going tech. That won't hurt.
Volume: 21.867M Avg Volume: 15.211M
BUY POINT: $31.1 Volume=20M Target=$35 Stop=$28.92
POSITION: AAW AY - Jan. $27.50c (67 delta) or AAW AE - Jan. $25c (77 delta) and/or Stock
http://www.investmenthouse.com/cs/qcom.html
Play Date: 10/01/2002
UHS (Universal Health Services--$53; +0.75; optionable): Hospitals
http://biz.yahoo.com/p/u/uhs.html
STATUS: Cup w/handle. Friday UHS moved out of its base but it had little volume to carry it. Thursday volume was strong and we thought about piggybacking on that volume, but decided to hold off and let it test back early this week with the market and then perhaps give a stronger move.
Volume: 573.7K Avg Volume: 591.197K
BUY POINT: New positions: After a test back to 52, 52.55 (orig. $51.79). Volume=800K Target=$58.25 Stop=$49.35
POSITION: UHS AJ - Jan. $50c (66 delta) and/or Stock
http://www.investmenthouse.com/cs/uhs.html
Downside:
Play Date: 10/09/2002
ACDO (Accredo Health--$46.44; +1.85; optionable): Specialized health services
http://biz.yahoo.com/p/a/acdo.html
STATUS: Testing the 50 day MVA. ACDO continued to move up through the short term moving averages, but did not attract a low of volume doing so as volume stayed well below average the lat three sessions of the week. Friday it tapped just over the 50 day MVA on its high (47.41) and fell back. The low volume indicates the move up was not that strong and ACDO is ready to test lower and could easily hit 42.50 if the selling resumes at all (some support there).
Volume: 674.322K Avg Volume: 750.132K
BUY POINT: New buy point: 45.94 Volume=850K Target=$42.50 Stop=$47.65
POSITION: DZU WI - Nov. $45p (-54 delta)
http://www.investmenthouse.com/cs/acdo.html
Play Date: 10/10/2002
WCNX (Waste Connections--$31.83; +0.71; optionable): Waste management
http://biz.yahoo.com/p/w/wcnx.html
STATUS: Put. Tested the 200 day MVA (32.04) as we thought it might, clearing it on the high but was not able to hold it. Volume was up after tailing of Thursday. Looks as if it is ready to test back lower, and the additional move up gives us more downside to work with.
Volume: 327.468K Avg Volume: 304.531K
BUY POINT: $31.65 Volume=325K Target=$28 Stop=$32.55
POSITION: NBU MB - Jan. $35p (-52 delta)
http://www.investmenthouse.com/cs/wcnx.html
PRE-ANNOUNCEMENT PLAYS
Play Date: 09/07/2002
EDMC (Education Management--$44.58; +0.85; optionable): Education and training. Forecast to announce a split on 10-24-02 in conjunction with earnings. At this time the company cannot confirm this date, but based upon our research this is the date for the announcement.
http://biz.yahoo.com/p/e/edmc.html
BACGROUND: Last announced a 2 for 1 split on 12-2-98 at a stock price of $46. The annual shareholder meeting was on 11-8-01 at which time no additional shares were authorized. The company has sufficient shares for a 2 for 1 split.
STATUS: EDMC managed to rally Friday on some slightly stronger, above average volume, but it spent most of the session coming back and closed well off of its high (45.50) and that kept us from initiating any new positions on the stock. What we will do is see if there is any softness early this week that then leads to a stronger move up. That is where we will look at new positions.
Volume: 388.923K Avg Volume: 363.304K
BUY POINT: After a test lower to 44-43, a move back over 44. Volume=520K Target=$49.45 Stop=$40.95
POSITION: UKN LH - Dec. $40c (65 delta, low OI) and/or Stock
http://www.investmenthouse.com/cs/edmc.html
Play Date: 10/05/2002
IGT (International Game Technology--$67.36; +1.56; optionable): Gaming electronics. Forecast to announce a split 10-23-02 in conjunction with earnings (company has not confirmed this date).
http://biz.yahoo.com/p/i/igt.html
BACKGROUND: IGT has never announced a stock split, but the gaming sector is performing well and the stock is near an all-time high, a leader in the market.
STATUS: Cup w/handle. Thursday's high volume test of the 50 day MVA (64.88) led to a gap up Friday, but volume could just manage average trade. IGT closed well off of its high (68.80) without the volume to support it. Needs to continue to hold 66 and then build up on strong volume. Accumulation in the pattern is positive at 9 up weeks on rising volume to 8 down weeks on rising volume.
Volume: 887.7K Avg Volume: 995.537K
BUY POINT: Aggressive: 68.45; Breakout: $70.95 Volume=1.2M Target=$80 Stop=$66.45
POSITION: IGT DN - April $70c (51 delta) or IGT AM - Jan $65c (61 delta) and/or Stock
http://www.investmenthouse.com/cs/igt.html
Play Date: 10/02/2002
MME (Mid-Atlantic Medical--$40.25; +1.53; optionable): Health care plans. Forecast to announce a split 11-6-02 after the close.
http://biz.yahoo.com/p/m/mme.html
BACKGROUND: MME has announced two prior splits in 1993 and 1994 at $35 and $40. For the first time since that time the stock is back at those price levels.
STATUS: Cup w/handle. MME followed Thursday's strong volume with a big breakout Friday on outstanding trade. Some very strong volume moves the past two sessions as MME made the breakout Thursday. It gapped higher and then spent the rest of the day pulling back. We though about taking positions but decided to hold off and see if it tests a bit lower first given it sold back most of the session. Made the move on the AET news, so we want to see it hold and then start back up. Solid accumulation at 3 up weeks on rising volume to just 1 down week on rising volume.
Volume: 1.194M Avg Volume: 523.758K
BUY POINT: New positions: an early week test of 39-40, 40.10. Volume=650K Target=$46 Stop=$35.6
POSITION: MME CF - Mar. $30 c (77 delta, low OI) OR MME CG - Mar. $35c (64 delta) and/or Stock
http://www.investmenthouse.com/cs/mme.html
PRE-SPLIT
Play Date: 10/12/2002
CPBI (CPB Regional Bank--$46.23; +0.59; no options): Regional bank. Splits 2:1 on 11-12-02
http://biz.yahoo.com/p/c/cpbi.html
STATUS: While most regional banks are in the trash heap, CPBI is finishing the handle to a 4-month cup. This is a very low volume stock with no options, but when it moves it can give $6 to $8 runs over a few weeks. It is building pressure in the pattern, and a breakout sends it to a new high with no overhead resistance.
Volume: 4.1K Avg Volume: 26.247K
BUY POINT: $46.41 Volume=25K Target=$52.45 Stop=$43.16
POSITION: Stock (no option chain)
http://www.investmenthouse.com/cs/cpbi.html
Play Date: 10/12/2002
EASI (Engineered Support--$49.66; +2.06; optionable): Defense. Splits 3:2 on 11-1-02
http://biz.yahoo.com/p/e/easi.html
STATUS: Rebound. EASI was hammered in the defense sell off the past three weeks, but it held support at 48 Thursday and started up again on rising volume. This rebound is a good opening point for another play as we look for momentum moves on pre-splits. We are not looking at a huge move here, so we are using options on the play.
Volume: 256.858K Avg Volume: 225.832K
BUY POINT: $50.24 Volume=255K Target=$53.55 Stop=$47.55
POSITION: UFE KI - Nov. $45c (73 delta)
http://www.investmenthouse.com/cs/easi.html
CONTINUING CANDIDATES
Play Date: 10/03/2002
HSIC (Henry Schein--$52.95; +0.35; optionable): Wholesale medical equipment
http://biz.yahoo.com/p/h/hsic.html
STATUS: Testing the 50 day MVA. Tried to make the big move Friday (54.85 on high) but had no volume again and gave it all back. Still a very nice, low volume consolidation. Just waiting for volume to accompany the move.
Volume: 282.632K Avg Volume: 420.196K
BUY POINT: $54.45 Volume=550K Target=$59.85 Stop=$52.05
POSITION: HQE AI - Jan. $45c (74 delta) and/or Stock
http://www.investmenthouse.com/cs/hsic.html
End Part 2 of 3
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us stock market
understanding the stock market
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